Even price metrics are showing the effect of this winter’s brutal weather. The headline CPI increased by 0.1 percent in January despite a larger push from energy. The energy price index gained 0.6 percent in January as gasoline prices fell by 1.0 percent. Usually, gasoline is the big mover in the energy price index. In January it was electricity and natural gas prices that pushed the consumer energy price index up. The core CPI (all items less food and energy) also gained 0.1 percent in January. Vehicle prices were down, consistent with weak car sales for the month. Over the previous 12 months, the headline CPI is up 1.6 percent as is the core CPI. We do not expect either index to drift much lower on a year-to-year basis. House prices are increasing across all major markets at a robust clip. This will support the shelter component of CPI. Increased export of U.S. energy products, as well as the potential for crude oil export, suggests support for petroleum prices. Unemployment rates are falling in all major markets, and are already low for some markets and for some specific occupations. An increase in the minimum wage would require pass-throughs for many businesses. Finally, the Federal Reserve is still engaged in asset purchases, which is supportive of equity markets.

The Conference Board’s Leading Index increased by 0.3 percent in January, following a revised 0.0 percent increase for December. Five of the 10 components of the leading index were positive. The biggest positive push came from the interest rate spread, unemployment claims and from improved credit metrics. The biggest drags to the index came from building permits (weather related), manufacturing hours and the ISM new orders index. It would not be a stretch to say that some of the weakness in the manufacturing metrics was also weather related. Both the coincident and the lagging indexes were weakly positive in January. Separately, initial claims for unemployment insurance fell by 3,000 for the week ending February 15, to hit 336,000. Continuing claims increased by 37,000 for the week ending February 8. We are looking for a decline in continuing claims as extended UI benefits are rolled back.

Market Reaction: Equity markets are green. Treasury yields are up. NYMEX crude oil is down to $103.15/barrel. Natural gas futures down to $4.90/mmbtu.

For a PDF version of this Comerica Economic Alert click here: CPI 022014.